Streaming Music Services: Free is Not a Good Business Model

Over the weekend, I saw a good New York Times article about the state of music streaming services. The premise is that a growing list of companies like Spotify, Rdio, Pandora and others are attracting lots of users, but are having a tough time convincing that customer base to pay for their services.

It’s a tough problem to solve, but what I do know is that offering streaming service access for free (with ads and lower sound quality) is not going to get it done. Even as Apple is reportedly drumming up a real-time bidding service with a focus on iTunes Radio. I thought the music industry would have figured this out back when Napster influenced a whole generation of young folks that music should be free. And earlier today, Billboard Magazine confirmed that digital downloads of music are starting to decline, and that’s partly because more customers are flocking to these streaming services. Guess what? That doesn’t help anyone if most of those customers aren’t paying. I thought the music industry would have figured this out back when Napster influenced a whole generation of folks that music is free. Maybe ads will eventually generate more revenue… but they sure aren’t making up the gap up to this point.

I’m old school when it comes to music. Over the last decades I’ve bought reams of albums (starting with the Flash Gordon soundtrack), cassettes (starting with Kiss’ Dynasty), CDs, digital downloads from iTunes (when it was the only game in town) and Amazon MP3, and I’ve been a paying subscriber on Pandora and now on Rdio for over a year. I’m the son of a musician, so I’ve always believed in the concept of supporting bands I like by buying their music and seeing their concerts when I can.

But I know I’m the minority. There’s a heck of a lot of folks who subscribe to the post-Napster view of the world that music is free. The fact that most streaming services lead with free is not a good long-term strategy.

I originally paid for the Pandora One premium service for two main reasons: 1) I liked the music recommendation service powered by the Music Genome Project. I find it’s a great way to discover new music. 2) I like the improved sound quality. I’m also old school when it comes to how good music sounds. I haven’t renewed my Pandora One subscription, primarily because my Lumia 928 Windows Phone came with a free year of Pandora One service. But, I’ve used it a lot less than I would normally because of ongoing problems with Bluetooth connectivity and the fact that my 2012 Camry doesn’t support the Lumia 928 via the USB port. That’s one of the downsides of being loyal to the Windows Phone platform.

The other service I pay for is Rdio. I found Rdio when I looked for an alternative to managing my digital music library of hundreds of CDs. I spent way too much time ripping CDs, adding album art manually, and re-ripping CDs at a higher bit rate for better sound quality years later. And I hate how easily iTunes duplicates music in my collection. I loved that Rdio made it easy for me to assemble a large part of my digital music catalog with little effort. And that the service was designed from the ground up to be mobile. It was the first digital music subscription service that covered (most of) the bases with iOS, Android and Windows Phone. Plus it’s also on other devices in the home like Roku and Sonos.

However, because of my Windows Phone Bluetooth issues and the fact that my car doesn’t recognize my phone means that I almost never use it on the go. The other problem is no one in my family is interested in using it. And I’ve tried. I’ve pitched my wife and my two kids (ages 9 and 10). My wife usually opts for the radio due to simplicity and my kids seem content with listening to a handful of digital albums on their devices. I would gladly pay more if anyone else in the family showed stronger interest.

So, I’ll probably reluctantly cancel my Rdio subscription and just buy a handful of digital downloads through Amazon in those times when I do purchase music. All this makes me wish more bands would go the direct route like Radiohead did with In Rainbows. I’d gladly give money directly to for new albums from bands like Pearl Jam, Red Hot Chili Peppers, Trent Reznor/ NIN, Foo Fighters and Stone Temple Pilots (if the latter two can ever patch things up). At least established bands would probably earn more royalties that way.

Look, the reason that CDs and tapes, and records were the price they were is because marketing professionals sat around and figured out the most inflated price they could put on the product and still have the public buy it. It was never about the actual value of anything. So as prices go down, it’s best not to think that it’s now being sold at a lower value than it’s worth, just at a lower value than it was being marketed to you before as. Because that’s all these numbers mean. It means we the public now get ripped off less by big corporations for the music we listen to and the TV/movies we watch. This is a good thing. I stream through spotify and torch music, just to feel like I am contributing, and I think what I do is enough. Why? Because I do support musicians, I just hink most of them have a very skewed view of how much they should be earning.

Thanks for the response. I don’t disagree that the cost of marketing inflated prices the industry charged consumers as a whole. I’m not quite sure what reality is in terms of musician royalties on these streaming services. Musicians claim that they only see real royalties after millions of plays, and these streaming services say they can’t be profitable if they increase royalties to musicians. Maybe the answer is for these services to charge more than $10 a month for service. I sure used to spend a heck of a lot more than that on CDs back in the day.

And in related news, Beats Music subscription service will launch on January 21 in the US. I’ll give it a shot because Trent Reznor’s involved, and from the looks of this, he’s really involved. http://nyti.ms/1lNRnUc